By Vincent Wen.    Photo： by Peter Lindenau from Pixabay

With the Chinese New Year holiday lasting for 8 days this year, the industry anticipates it will take approximately three weeks for factories to resume normal shipping. During this period, the impact of the shipping crisis on the market is expected to gradually diminish, delayed shipping schedules will be alleviated, and extended voyages may become the new normal, contributing to the market's gradual return to normalcy.

Prominent maritime consulting agencies argue that there is a severe oversupply of capacity this year, allowing the market to handle the disruptions caused by the shipping crisis. Some industry veterans also point out that as long as supply continues to exceed demand, it will be challenging for shipping rates to increase. The recent spike in rates in the past few weeks was primarily influenced by the pre-Chinese New Year peak in shipments.

Analysts generally believe that after the holiday period, as manufacturing and port facilities recover, the market will gradually adapt to the current situation. Lars Jensen, CEO of maritime consultancy firm Vespucci Maritime, stated, "We are passing through the peak of service disruptions, and the calm period of the Chinese New Year will provide the necessary background for the full normalization of a new round of operations for the Africa route (referring to sailing around the Cape of Good Hope)."

However, some opinions suggest that the interruption in Red Sea shipping could have a lasting impact on the profitability of shipping companies. Jefferies analyst Omar Nokta estimates that the container ship capacity utilization has risen from 78% before the Red Sea crisis to 87%, shifting shipping companies from a market with limited pricing power to one with significant pricing power.

Even with recent increases in utilization due to ship diversions, supply still exceeds demand. The agency predicts a 9.3% surge in effective capacity in 2024 compared to a 2.3% growth in demand. Considering route changes, the current estimate is a 5.3% growth in effective capacity and a 2.4% growth in demand, indicating a significant imbalance between supply and demand.

Additionally, the performance of U.S. ports during the pandemic has raised concerns within the industry. Some worry that delayed shipping schedules could lead to a surge in vessel arrivals, causing port congestion and container scheduling difficulties. However, industry insiders also point out that the severe labor shortage during the pandemic, caused by worker infections preventing them from working, is no longer an issue. Therefore, even if there is a backlog at ports for two to three weeks, it should be quickly resolved.

The market still faces unpredictable factors, such as the escalation of the Red Sea crisis, soaring oil prices, and a potential Israeli-Palestinian ceasefire agreement leading to the normal resumption of Red Sea passage. Similar to the COVID-19 pandemic, the duration of these factors remains uncertain. For now, all that can be done is to wait for time to provide evidence.

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